Carbonite Acquires Double-Take Software For A Cheap $65 Million

| About: Carbonite Inc. (CARB)
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Data backup services company Carbonite has acquired Double-Take Software for $65 million in a cash and stock deal.

Double-Take will expand Carbonite's market and services offerings for a low deal multiple.

The technology integration and sales team ramp-up will take several quarters to implement, so investors will need to be patient.

Quick Take

Data protection company Carbonite (NASDAQ:CARB) announced that it has acquired Double-Take Software for $65.25 million in cash and stock.

The acquisition is valued at 2.6x forward bookings, so appears to be a good deal for Carbonite to expand its available market and offerings to cross-sell into.

The technology and sales team integration will take 12 months before investors know how well the acquisition may pay off for Carbonite.

Target Company

Irvine, California-based Double-Take was founded in 1991 as NSI Software, changed its name in early 2006, went public in late 2006, and was acquired by current seller Vision Solutions, which is a portfolio company of private equity firm Thoma Bravo.

The company provides software that helps enterprises reduce their downtime for Microsoft (NASDAQ:MSFT)-based server environments as well as Linux and VMware (NYSE:VMW) ESX operating systems.

Below is a brief explainer video about the company's disaster recovery protection system:

(Source: Vision Solutions YouTube)

Competitors to the company's software are too numerous to mention here, but include:

  • Veeam
  • Zerto
  • Acronis
  • Dell/EMC
  • Datto

Acquisition Terms, Rationale and Commentary

Deal consideration was $65.25 million, composed of $59.75 million in cash and $5.5 million in Carbonite stock. Double-Take had originally been taken private for $242 million in 2010, so Carbonite paid a fraction of that price for the deal.

Carbonite funded $20.55 million of the cash portion of the deal via cash on hand. As of September 30, 2016, the company had $49.1 million cash and cash equivalents (Unaudited). The remaining cash portion was funded via $39.2 million through a revolving credit facility with Silicon Valley Bank.

Concurrently with the transaction announcement, the company announced updated guidance for 4Q and FY 2016 financial results with GAAP revenues for 4Q 2016 expected to be in a range of $53M to $53.5M vs. previous guidance of $46.6M to $51.6M.

Carbonite provided five rationales for the acquisition:

Double-Take High Availability - Replication of applications and data, in real time, from physical, virtual and cloud servers

Double-Take Disaster Recovery - Failover between a primary and secondary or cloud location in an emergency

Double-Take Move - Scheduled move of systems from one location to another

Double-Take Cloud Migration - Planned migration from MS Windows to Amazon, Azure or Google clouds

Double-Take SQL Migration - Migrating and upgrading Microsoft (SQL Server)

The acquisition will enhance Carbonite's offerings by providing real-time replication and disaster recovery capabilities to the SMB (small and midsized business) market. In the current online environment, SMBs need these capabilities that can provide real-time access, rather than hours or days.

Double-Take's software accomplishes this for Windows and Linux SMB users, so adds to Carbonite's existing market penetration with individuals and small businesses. The seller, Vision Solutions, sold Double-Take because it wants to more tightly focus its operations on data protection, high availability and IT automation software functions.

In Carbonite's acquisition presentation (PDF), management highlighted the addition of 6,000 customers and 500 partners that Double-Take will bring. In addition, Double-Take may add a midpoint of $25 million in 2017 bookings to Carbonite's current revenue run rate of $206 million. (Non-GAAP)

Carbonite's existing focus is on the small and mid-market segments, and Double-Take will afford it opportunities to cross-sell its EVault service to Double-Take's mid-market and larger customer base. In sum, the deal is promising to Carbonite as it appears it paid about 2.6x forward revenues for a complementary business into which it can cross-sell.

It will take 12 months of technology integration and sales team ramp-up to know whether it was a good move, but I am optimistic that a re-energized Carbonite will be able to capitalize on a low-price acquisition that expands its available market and offerings.

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